ERP Selection Methods INFSY 489 IST 402 ERP

ERP Selection Methods INFSY 489 / IST 402

ERP Selection �Cost range of ERP system is enormous �Range anywhere from $5 million to $100 million �Training employees may cost as much as 20% of ERP system’s cost �Project begins with project proposal

ERP Selection �Analytic methods support the decision process �Provide decision makers with expected outcomes �Provide a basis for communication on the reasons for a selection

How to Build an ERP Adopt only a few ERP modules from a vendor Rent an ERP product from an application service provider Adopt a vendor product completely Customize a vendor product Develop an ERP in-house

Best-of-Breed Approach �Modules considered to be competitively strong selected from multiple vendors �Custom interfaces developed to allow exchange of data

Measurement of Project Impact �Information Systems projects are often difficult to justify solely based on concrete monetary benefits �Cost-Benefit Analysis includes �Tangible Factors �Intangible Factors �Lead to competitive advantage

Measurement of Project Impact �Intangible Factors: �Increased market share �Improved customer service �Better corporate image �Improved employee satisfaction �Supply-chain integration �Ability to support e-business operations

Measurement of Project Impact �Large IT projects often change organizational power �Change the communication structure �Experienced employees may feel threatened by new system �Change work roles making some workers feel less productive

Information Technology Selection �Hinton and Kaye surveyed 50 members of a professional organization to identify how IT projects were selected �Treated IT projects as: �Capital investment using cost-benefit analysis to establish profitability �Revenue-related project expected to benefit organizational goals

Information Technology Selection �Since most organizations treat IT projects as capital investment �Have to have measurable profit benefits �Most commonly cited justification for IT projects: �Reduction in expenses, i. e. Payroll �Accomplishing a strategic objective

Information Technology Selection �IT projects involve multiple risks �Abilities of project manager �Experience with this type of application �Experience with programming environment �Experience with language or system used

Information Technology Selection �Familiarity with modern programming practices �Availability of critical equipment, software, programming language �Completeness of project team �Personnel turnover �Project team size �Relative control of project manager over project team

IT Project Approval

Evaluation Techniques �Cost-Benefit Analysis �Accurate measurement of the benefits and costs in monetary terms of project �Uses the ratio benefits/costs

Evaluation Techniques �Net Present Value �Uses present value of the cash flows expected from a proposal �If the present value of the net cash flow expected from a proposed investment, at the selected rate, equals or exceeds the amount of the investment, the proposal is desirable

Evaluation Techniques �Payback �Identify cumulative net cash flow and identify how long it will be before it turns positive

Evaluation Techniques �Value Analysis �Used when projects’ benefits are heavily intangible �Separate the benefits measured in intangible terms from costs �Present decision maker with the intangible comparisons in performance �Are the improvements provided by the new system worth the price?

Evaluation Techniques �Multiple Objectives �Profit �Minimize Risk �Develop markets �Capital replenishment �Labor policies �These items pose conflicts for decision makers in today’s businesses

Evaluation Techniques �SMART (Simple Multiattribute Rating Technique) �Considers benefits of a system on a variety of scales without converting them to a common scale like dollars �Provides a means for decision makers to quantify their preferences �Scores and Weights are used to compute a Value Score on each project